In this course you will learn how organizations create, capture, and maintain value, and how it is fundamental for sustainable competitive advantage. You will be able to better understand economic value creation and value appropriation, and learn the tools to analyze both competition and cooperation from a corporate level perspective, (e.g., through vertical integration, diversification, and geographic scope decisions).
You will:
• Understand how corporations create, capture, and sustain competitive advantage.
• Analyze business situations and create a coherent corporate strategy.
• Understand the fit between corporate strategy and organization structure to improve economic performance.
This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

DO

Very insightful, well packaged and presented course by all standard. All the topics will move you to continually read over and over again. Practically oriented.

EM

Aug 23, 2017

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Highly recommended Course. In the beginning the course might seem advanced for beginners, but it becomes comprehensible as you gradually get into the course

À partir de la leçon

Module 4: Corporate Governance

This module focuses first on the characteristics of public firms. Second, it considers stakeholder impact analysis and corporate social responsibility. Third, it emphasizes corporate governance and the mitigation of agency problems.

Enseigné par

Joe Mahoney

Professor of Business Administration

Transcription

[SOUND] [SOUND] Okay, in this module, we will discuss the topic of Corporate Governance. In particular, we'll look at the publicly traded corporation or sometimes referred to as a public stock company, which is the backbone of our economy. What are the characteristics of a public firm? Well, four key ones are first that there's limited liability for investors. Many people would define that as a key to a publicly traded corporation. The second is the technical term is transferability of an investor interest but what that essentially means is that the owners of stock can buy and sell stock. The third one is called legal personality. And sometimes in the news there's a lot of discussion of the idea of the corporation as a person. The legal advantage of this idea of a single entity of a person is that the board of directors then is responsible for that person, to use that analogy or metaphor. That is the board of directors is responsible for all of the stakeholders in the corporation, what's in the best interest of the corporation itself. Finally, the last aspect that's a fact about most publicly traded companies, that there's is a separation of ownership and control. In particular, if we think of ownership as who gets the extra income beyond paying off all the other stakeholders, well that residual income or the residual claimant is called the shareholder. So in terms of income, the ownership is with the stockholders. But there's another meaning of ownership, and that is who has control. And typically the managers have control. Now, that means with a separation of ownership and control, there's the question of will the managers act in the best interest of the shareholders? Sometimes at the Harvard Business School they call that OPM or other people's money. There's actually a movie of that title also that's kind of connected to these problems of separation of ownership and control. It has Danny Devito in it as I recall. Okay, the next is this picture within many textbooks about the hierarchical nature of a publicly traded company. So at the top, you have the rules of the game of the state and different states have different rules of the game. And some are more well-defined than others. So the State of Delaware for example, is one of the oldest states in the United States, has many incorporated entities within that state. So they have the most well-defined property rates of all the states of the United States. And therefore, a lot of companies like to incorporate in the state of Delaware because they have less ambiguity about the rules of the game when they incorporate in Delaware. Once you get beyond the state's rules of the game, you also have the rules of the game of the corporation itself and the corporate charter of the company. And there, there's a pecking order. In most textbooks, it's as it is on the screen here, it's the shareholders who then vote for the board of directors, the board of directors have responsibility for the management, and the management has responsibility for the employees. I will point out kind of a nuance point though, is that you may have noticed a moment ago I said the board of directors is in charge of the legal personality of the corporation itself which includes all stakeholders. So, in some pictures, we actually would switch, if we have a stakeholder view with management, which I do. This is a stockholder view of management. If you have a stakeholder view, you would put the pecking order a little bit differently. You'd put the border of directors actually above the shareholders. That is the border of directors is not only responsible for the shareholders, the board of directors is responsible to all stakeholders of the company. And that's the meaning of the legal personality, that's the fiduciary duty of the board of directors. Next we have a discussion of there's many problems in all types of organization including our focus on capitalist organizations. The final point I'll make about this slide on the public stock company is, the state charter of all 50 states in the United States are different and have different corporate governance rules. As we talk about different countries, like Germany, France, China, Japan, they each also have their own corporate laws within each of those countries. So in the same way we had variation within a country, like the United States here, later on we'll also talk about variation in corporate governance across countries as well. And some of them have to do with this separation of ownership and control and agency problems, and so managers acting in their own self-interest, and some get very high profile like Enron Corporation, WorldCom, and Tyco. Enron did all type of things. And their accounting, for example, the simplistic version of what they were doing is suppose you buy someone's house and you have someone buy your house and then you put it down as revenue for both of you and then you barter your houses back. So essentially they don't do anything but the books make it look like they're collecting lots of revenue and trying to move up their stock price and get more bonuses and things like that. The second is of course, the global financial crisis in the real estate bubble burst. And that also is the real estate folks got a lot of money when they made these deals and often they would make deals with people that really had no ability to pay back. And as you have more and more houses like that on the market, eventually there's a collapse in the pricing and that's what occurred in the United States for the real estate bubble. What these examples then show is that managerial actions effect the economy, for example the Enron one, in California they deliberately manipulated the energy, and deliberately had shortages. And then you had blackouts in the state of California, you had the rescinding of the governor in California and in his place came Arnold Schwarzenegger onto the scene. I mean all that came about largely because of the actions of Enron and their manipulations in the state of California. So these ethical business procedures do influence, when they're in place, have positive impacts, and when they're not in place, they can have very negative impacts and destroy value in the economy. So the bottom line is that stakeholder management is quite important and needed. So your question for discussion is consider the case of a pharmaceutical company that discovers a drug that can cure a disease that's prevalent in Africa. Suppose this drug is projected to provide very low economic returns if the pharmaceutical company distributes the drug in Africa, that this is a real question from many pharmaceutical companies. Should the pharmaceutical company go ahead with the distribution of the drug? And on what basis do you defend your decision? Please reflect on this question and post your response in the discussions for this video, thank you. We've been discussing the idea of a stakeholder analysis and here would be the kind of the step by step procedures or routines for doing a stakeholder impact analysis. The first question is to ask who are the stakeholders. We might consider the employees, the customers, the suppliers, the community, so whoever can be affected or affect the corporation are typically included the stakeholders. The next thing is, what are the stakeholders interest and claims? You just had a discussion about the pharmaceutical industries and the giving away of drugs. So for example, the people and those patients in Africa are definitely going to be for giving away the drug. Perhaps the shareholders might be against giving away the drug. The employees might be varied if they're the scientists. And the company, they don't the meaning of NPV or not that interested in the shareholder wealth unless their company has a lot of scientists have stock options which is not always the case. So they may be much more focused on scientific problems. And they're in the company to have an impact positively on the world in terms of the drugs they're providing. So they might actually be for the distribution of the drug. And then as a manager, you have to think about you got pressures from the shareholders saying don't do it. You got pressures from your employees saying do it. If the scientist or the key employees of the company and they're going to walk. If you don't do it then the shareholder wealth can be affected there as well because a lot of the value of the company is in the employees. So managers in many companies, whether they want to or not, cannot simply have a simplified version of just maximize the share price because that's actually very much intertwined with the decisions of the stakeholders. So the next step in the process then is what are all the opportunities and threats to all these stakeholders present? And you need to do a systematic analysis of all the stakeholder groups and what are their interests. And really what you're trying to get is a decision that keeps the coalition together, you don't have the employees walk, you don't have the shareholders en mass sell off the stock. So you're just trying to, a manager you can think of is just trying to balance. In some ways, in a positive sense of the word politician, we don't always use that term in a positive way but in a positive sense of a politician of the polity of keeping the organization together and making sure the most important stakeholder you don't want exiting are your customers. The next step then is to think about what economic, legal, ethical and philanthropic responsibilities do we have to the stakeholders. So those are all different levels of analysis. In our next video, we'll actually discuss what's called the corporate social responsibility pyramid. Finally, the last step is what should we do to effectively address the stakeholder concerns? So the stakeholder impact analysis is really looking at what impacts corporate performance. And it's looking at issues of corporate governance, which we'll get to in more detail in the next two videos. It also looks at business ethics and then it also looks at social issues of social responsibility. So that's it for this time and I look forward to seeing you for the next video. Thank you.